Guiding You Through Your Presale Investment

Some people want to lock down a home with a deposit now, while deferring mortgage payments (and other expenses) to a later date. Others may plan to live in a certain area in the future, and want to secure a unit well ahead of time. Either way, because presales require a fraction of the unit cost (often 20% or less)  as deposit, it’s a future-oriented investment that stretches out your financial obligations.

One of the most obvious benefits is that you enjoy a brand new, never-lived in home. You often have the option to choose the finishing and material to your taste. And, in a situation where the real estate value appreciates in the area, you can enjoy a boost in property value and equity before your first mortgage payment kicks in. This may not always be the case, however, as you will see in the next point. 

Not always! In a situation where the real estate market slows down, the value of your new purchase may decrease by the time construction is complete and the unit is ready for possession. It is important to have a solid understanding of the financial implications and consequences of both ups and downs of the market, and get expert guidance from experienced real estate professionals. 

Congratulations - this is the best case scenario. You can enjoy your new home knowing that you bought it early at a lower price compared to buying a similar resale property later on. You also have the option to sell the property at a profit, or assign the contract before completion.

I.e. The presale price on contract was $750,000 at the time of purchase and you paid a 20% deposit ($150,000). By the time the construction was completed, the unit was worth $800,000. You’ve gained $50,000 in equity on a $150,000 payment (33% return). 

While this has been uncommon in the recent decades in BC, it is a possibility when the real estate market cools down and property value drops. You will still be obligated to complete the unit purchase at the originally agreed upon price at the time of contract to avoid legal action against you, or suffer a partial or complete loss of deposit. The time delay between paying the deposit and the completion offers you some time to save up some more money as a safety net.

I.e. The presale price on contract was $750,000 at the time of purchase and you paid a 20% deposit ($150,000). By the time the construction was completed, the unit value has dropped to $700,000. You will still need to pay, or get financing for, the remaining $600,000 owed to the developer.

Assignments are a common type of transaction in Canadian real estate in which a buyer of a presale home sells it to another individual before the completion. Because you are selling the contractual rights to a future home rather than an already built (rather than selling an already existing home) it is called an “assignment of contract”, or more casually called an “assignment”. It does NOT refer to homework or a task given to complete

Yes, this is a possible scenario that happens once in a while. Some projects can be cancelled if there are not enough interested buyers, and they fail to secure a minimum deposit amount to carry out the remainder of the project. In other more rare scenarios, developers can run into financial hardship, resulting in a halt in construction.

You will get your deposit returned immediately if the project is cancelled due to lack of commitments. The Real Estate Development Marketing Act compels developers to hold presale funds in trust, so even in cases of financial distress, the buyers can get their deposit back.

If this happens, however, you will have missed out on the opportunity cost of securing another development instead. Years of waiting, and you are back to square one without a home secured. In an appreciating real estate market, you will have to pay a higher purchasing price under new conditions, costing you more money instead of having earned that equity gain.

This is why it’s important to choose your presales wisely based on the history and stability of the developer behind the projects, and the Nest Presales team is here to offer such guidance.